How Can Distressed Firms Recover?


The early 2000s recession hit 3D Systems Corporation hard. Prior to 2000, the company, a leader in the emerging 3D printing industry, was financially stable, but starting in 2001, the firm began to slide into financial distress. Like many companies, 3D Systems initially tried cutting costs, reducing its workforce by 10% in 2001, then closing numerous facilities and reducing its workforce by an additional 20% in 2002. But none of these changes were enough to turn the firm’s fortunes around.

The paper “Marketing Capability and the Turnaround of Financially Distressed Firms,” published in October in the Journal of the Academy of Marketing Science, tries to understand how financially distressed firms like 3D Systems recover. In it, Culverhouse’s Dr. Abhi Bhattacharya, along with collaborators Joseph Johnson (University of Miami), Ashkan Faramarzi (UCLy), Niket Jindal (University of Missouri), and Ross W. Johnson (University of North Texas) study a dataset of U.S. firms between 1995 and 2021, and draw conclusions about what conditions help distressed firms recover and become healthy again.

The researchers found that cutting costs, by itself, did little to enable firm recovery. Investing in research and development helped, but mostly in firms that were suffering because their entire industry was suffering. For instance, in the early 2000s, when children were more interested in video games and TV, toy sales were suffering, and Lego was no exception. In response, Lego developed innovative product lines that catered to a different demographic: older children and adults.

The researchers also learned that investing in smart, efficient marketing helped a great deal—a full 21 times the impact of research and development. For instance, in 2018, Campbell’s Soup fell on hard times. Private label products were shaving off market share, and the general public was losing its taste for canned, artificially flavored soups. Just in time for the COVID-19 pandemic, the firm invested in marketing, rebranded their soups, redesigned their labels, upgraded their ingredients, launched new, spicier soups, and took aim at young men as a new marketing demographic. As a result, the company recovered in 2020, and continued its recovery streak well into 2021.

But what about 3D Systems?

Since its distress was an industry-wide problem—most firms were suffering because of the recession—3D Systems innovated, investing in R&D and offering 17 new products by 2004, including the industry’s first desktop 3D printer. Now, the firm’s revenue totals around half a billion dollars per year.

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Zach thomas

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